MARC has issued a rating update on its A- rating on Perdana Petroleum Berhad’s (Perdana Petroleum) RM400 million Nominal Value Secured Serial Bonds following its announced divestment of its 26.9% equity stake in Petra Energy Bhd (PEB). Proceeds raised from the proposed divestment will be applied toward the early redemption of RM70 million of outstanding bonds, of which RM35 million is due on September 28, 2012 and the balance on March 29, 2013.

In May 2012, the bondholders agreed to waive the requirement to fund Perdana Petroleum’s debt service reserve account (DSRA) to give Perdana Petroleum time to implement its divestment of its PEB equity stake and address its upcoming bond maturities. Perdana Petroleum entered into a share sale agreement (SSA) with Wasco Energy Limited (WEL), a wholly-owned subsidiary of Wah Seong Corporation Bhd (Wah Seong), on July 3, 2012 to divest 57.7 million PEB shares to the latter for a total cash consideration of RM96.9 million. The divestment is expected to be completed by end-August 2012. All approvals from relevant parties have been obtained as of today, including shareholders of Perdana Petroleum.

Perdana Petroleum is an offshore marine vessel provider supporting primarily the upstream oil and gas industry. Perdana Petroleum reported a pre-tax loss of RM7.9 million and negative free cash flow of RM58.2 million for the first quarter of 2012 (1QFY2012) due to depressed revenues and capital expenditure. Its first quarter revenues were impacted by the prolonged monsoon season which resulted in the interim demobilisation of workboats and work barges and consequently, low vessel utilisation. Despite the prospects for improved operating performance on the back of more supportive industry conditions, and the completion of the company’s fleet renewal programme in 2011, which signals the end of the high capital spending cycle, near-term liquidity uses including debt repayments are expected to exceed available liquidity. The company needs additional funds of RM65.5 million on top of the balance in the DSRA to repay the RM70 million outstanding bonds. Meanwhile, cash balances were RM35.8 million as at end-March 2012, down from RM67.0 million in December 2011. The company is relying on the proposed share sale to provide needed liquidity to offset its weak earnings and cash flow generation and to address upcoming debt maturities.

MARC considers the execution risk in completing its liquidity-raising initiative as moderate; the company has indicated that it is at an advanced stage of divesting its stake in PEB and that it may secure a bridging loan to refinance the maturing debt in the event of a delay in the completion of the share sale.

MARC will continue to monitor the progress of the divestment exercise. Negative rating action will be warranted in the event of a delay in completion of the divestment in the absence of mitigating action to address the increased credit risk.

Contacts:
Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my;
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.